Peculiar economics of Bangladesh license renewal

I was asked about charging different amounts for spectrum when I was in Dhaka recently and I said it was like pricing jet fuel differently for competing airlines; it did not make any sense. Now we have the full argument laid out. It’s very peculiar. On what basis was this utilization factor calculated? I asked Dr Harsha de Silva who prepared the comments on the consultation paper; he said it was fully opaque.

Prices of radio spectrum laid out in the complex licence renewal guideline have baffled telecom operators. The charges are too high and different for different operators.

According to the draft 2G licence renewal guideline, radio spectrum prices per megahertz (MHz) are set at Tk 300 crore for the 900 MHz band, Tk 150 crore for the 1,800 MHz band of GSM technology, and Tk 150 crore for the 850 MHz band of CDMA technology.

The actual charges to be paid by the mobile operators are much higher, when the spectrum utilisation factor is taken into account.

In fact, four mobile operators will have to pay a total of Tk 12,118 crore in spectrum fees. Grameenphone will have to pay the highest — Tk 5,504 crore, Banglalink Tk 2,994 crore, Robi Tk 3,000 crore, and Citycell Tk 620 crore, although their renewable radio spectrum volumes are not much different.

4 Comments to “Peculiar economics of Bangladesh license renewal”

“The World Bank (WB) has opposed the draft guideline for licence renewal of telecom operators, saying the move will impede growth of the booming sector and cast a negative impact on the government’s revenue and stockmarket,” Daily Star reports.

Its not only the renewal time for cellphone operators, but the flag bearer of BTRC himself needs a renewal next February. He has miserably failed to maintain the image and its regulatory authority built over the last few years. Practically the revenue earning of BTRC came down to merely 50% both in 2009 and 2010. He is sinking no doubt, and for this he badly needs this Tk 12,118 crore from spectrum fees just to recover his own failure and manage a renewal for another 3 years.

I don’t get the point why BTRC has to earn the revenue. It is also strange that the regulator is given a target of revenue collection. Ideally, the regulator should charge a small percentage (say 0.5%) of the operators’ revenue in order to cover the cost of regulation. The government has separate machineries to collect money from the operators; and those should be used to collect money, not the regulator.

Regulatory agencies should not be earning revenues. They should simply take enough regulatory fees to cover their costs. Best option would be for even those costs to be covered by general government funds (this is the case in countries like the UK), but an acceptable second-best option would be to set a regulatory fee that just covers costs, with the excess in any given year being sent to treasury. All one-time revenues such as license fees, fines, etc. should go directly to government. Otherwise you would create perverse incentives, where the regulatory agency would be fining operators to pay its staff bonuses. Obviously this would violate principles of natural justice.